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Financial Institutions of every country have responsibilities to ensure its financial and economic stability. At many times, desperate times demand desperate measures. To mitigate the potential long term risks, it becomes crucial to take harsh and strict decisions. The Federal Reserve’s take on curbing the inflation by hiking the interest rate is a somewhat similar situation.
Entire world has seen how the global economy took the hit during Covid 19 pandemic and after. The US government released several bail out packages and took similar decisions—injecting the liquidity and anticipating the recovery in markets. For a while, the plan did work but gradually the heavy flow of liquidity started affecting the economy. The Fed decided to dry up the extra liquidity and went on to increase the interest rates.
The decision came out in the wake of mitigating the potential risks of growing inflation. However, the hiked rates started showing adverse effects. The potential recession and its skepticism made people withdraw capital from high risk investments like crypto as well as the stock market. In order to counter the long term inflation, Fed’s decision triggered a momentary recession.
Crypto and stock markets once again appeared to move in a tandem. Assets within both the markets went through declines. On top of that the collapse of Terra (LUNA) network came as a nightmare for the crypto industry. The markets went into mayhem coupled with several other reasons including Russia-Ukraine war, etc..
Are the Bearish Signals Still There?
Indications of the US central bank’s further actions bring skepticism and uncertainty. As the Minneapolis Federal Reserve Bank CEO and President, Neel Kashkari said that the financial institution has authority and capability to control inflation and bring economic stability.
Kashkari recalled the historical event when in the 1920s, Federal Reserve chairman Paul Volcker stopped inflation. While countering the inflation, it created two massive recessions. However, the Minneapolis Fed considered this recession to be a relatively smaller problem and inflation was important to deal with first.
Such statements somehow indicate the intentions and priorities of the United Federal Reserve. The possibilities are there that the market could dwell into more bearish trends as a reaction to Fed’s action.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
